Banking giant Goldman Sachs is revealing one investment play it believes will continue to outperform, despite current market weakness.
In a new episode of the bank’s This Is the Markets podcast, John Storey, the co-head of Equities Distribution in Goldman Sachs Global Banking & Markets, says he favors asset-heavy sectors over names that are light on assets.
Storey explains that the rotation from asset-light names like software and into asset-heavy equities has “an enormous amount of legs,” suggesting the trend will continue.
“Let’s look at the asset-light, which is look at software, where people are struggling to determine what is the terminal value of this sector. And that’s the rotation away from a true asset-light, where people thought actually that was the safest haven to be. Very modelable earnings and now coming to question with AI impact and trying to work out: what is the terminal value of those companies?
The team wrote a piece: HALO – heavy asset, low obsolescence – which is looking at those heavy assets that are really difficult to disrupt with an AI theme. And that, I believe, the heavy asset basket has outperformed the light by 25% year-to-date. So that’s semiconductors, defense, data centers, mining materials, you name it.”
According to Storey, sectors that are heavy on assets have one big tailwind that could push their shares to much higher prices.
“I think the picks and shovels trade around AI has worked incredibly well. The CapEx spend, as we keep revising up our number, or corporates keep revising up their number on CapEx spend, is playing through in the market. So how can you not be long the likes of the picks and shovels, semiconductors, et cetera?”
Last month, the six hyperscalers, including Amazon, Google and Meta, announced that they collectively plan to spend $655 billion just this year to fund the AI buildout.
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